Tuesday, May 13, 2008

WSJ: Icahn Enters Microsoft-Yahoo Fray

May 13, 2008 5:10 p.m.

Billionaire investor Carl Icahn has amassed a stake in Yahoo Inc. and is leaning toward launching a proxy contest to unseat at least part of Yahoo's board, according to one person familiar with the situation.

Mr. Icahn bought roughly 50 million Yahoo shares since Microsoft Corp. on May 3 withdrew its unsolicited offer to buy Yahoo, the person said. Mr. Icahn is expected to decide Wednesday whether to launch a proxy contest -- a Yahoo deadline for board nominations looms Thursday -- and he currently has no assurances from Microsoft it would reconsider a Yahoo purchase. The person said that Mr. Icahn was unsure whether he would nominate a full or partial slate of candidates to try to replace Yahoo's 10-person board. A shareholder vote on any such nominees would take place at Yahoo's annual shareholder meeting on July 3.

Shares in Yahoo climbed more than 5% to $26.56 in 4 p.m. Nasdaq Market trading Tuesday following a CNBC report that Mr. Icahn was weighing such an effort. A spokeswoman for Mr. Icahn declined to comment.

Other activist hedge-fund managers also are eyeing Yahoo and deciding whether to become involved in any fight. Scott Galloway, founder of investment firm Firebrand Partners LLC, and his firm are examining the situation and may get involved, according to people close to the matter. Mr. Galloway, who waged an activist campaign against New York Times Co. that recently netted him a board seat, declined to comment. A person familiar with the matter said that he and Mr. Icahn were not currently coordinating their efforts.

One reason for such an activist effort may be to rekindle negotiations to sell Yahoo to Microsoft at a premium to its current share price. The earlier talks broke down May 3 with Microsoft citing a divide on price. Since then, some Yahoo shareholders have tried to pressure Yahoo's board to return to Microsoft and try to sell the company. Some large Yahoo shareholders have contacted Mr. Icahn in recent days, urging him to become involved, said one of the people familiar with the matter.

But, for now at least, Microsoft has moved on and is not considering such a deal, said people familiar with the matter. A Microsoft spokesman declined to comment other than to cite Chief Executive Steve Ballmer's May 3 letter withdrawing Microsoft's offer as the company's current stance.

One person close to Yahoo said that the company is not overly worried about a proxy challenge because it believes investors who wouldn't support such a campaign hold a significant enough share of its capital. Yahoo co-founders Jerry Yang and David Filo together own roughly 10% of Yahoo. A Yahoo spokesman wasn't immediately available for comment.

Separately, activist investor Eric Jackson said he likely won't nominate any candidates for Yahoo's board after trying to muster financial support from Yahoo shareholders for such an effort. "It's 90% certain I'm not going to," said Mr. Jackson, who holds 96 Yahoo shares. "It's cost prohibitive for me to proceed on my own." Mr. Jackson plans to proceed with his campaign to get shareholders to withhold their votes from Yahoo's current directors at the next annual meeting in protest. "This breakdown in talks with Microsoft is just the latest mistake--or poor outcome--for shareholders," he added.

--Marissa Marr contributed to this article.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Kevin J. Delaney at kevin.delaney@wsj.com

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